Variable and Absorption Costing

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a.

A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations: Selling price $123 Units in beginning inventory 0 Units produced 1,000 Units sold 900 Units in ending inventory 100 Variable costs per unit: Direct materials $41 Direct labor $26 Variable manufacturing overhead $4 Variable selling and administrative $6 Fixed costs: Fixed manufacturing overhead $17,000 Fixed selling and administrative$11,700 What is the net operating income for the month under variable costing? A) $12,700 B) $5,600 C) $1,700 D) $14,400

c.

A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations: Selling price $135 Units in beginning inventory 0 Units produced 6,400 Units sold 6,200 Units in ending inventory 200 Variable costs per unit: Direct materials $49 Direct labor $38 Variable manufacturing overhead $6 Variable selling and administrative $11 Fixed costs: Fixed manufacturing overhead $108,800 Fixed selling and administrative $74,400 The total contribution margin for the month under the variable costing approach is: A) $155,000 B) $260,400 C) $192,200 D) $83,400

d.

A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations: Selling price $79 Units in beginning inventory 0 Units produced 6,600 Units sold 6,300 Units in ending inventory 300 Variable costs per unit: Direct materials $14 Direct labor $30 Variable manufacturing overhead $4 Variable selling and administrative $8 Fixed costs: Fixed manufacturing overhead $46,200 Fixed selling and administrative $88,200 What is the total period cost for the month under the variable costing approach? A) $138,600 B) $134,400 C) $46,200 D) $184,800

a.

A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations: Selling price $97 Units in beginning inventory 0 Units produced 2,200 Units sold 2,100 Units in ending inventory 100 Variable costs per unit: Direct materials $32 Direct labor $25 Variable manufacturing overhead $2 Variable selling and administrative $9 Fixed costs: Fixed manufacturing overhead $8,800 Fixed selling and administrative $37,800 What is the total period cost for the month under the absorption costing approach? A) $56,700 B) $65,500 C) $8,800 D) $37,800

b.

A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations: Units in beginning inventory 0 Units produced 1,900 Units sold 1,700 Units in ending inventory 200 Variable costs per unit: Direct materials $33 Direct labor $32 Variable manufacturing overhead $2 Variable selling and administrative $6 Fixed costs: Fixed manufacturing overhead $72,200 Fixed selling and administrative $6,800 What is the unit product cost for the month under absorption costing? A) $67 B) $105 C) $111 D) $73

d. 87

A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations: Units in beginning inventory 0 Units produced 7,100 Units sold 7,000 Units in ending inventory 100 Variable costs per unit: Direct materials $33 Direct labor $53 Variable manufacturing overhead $1 Variable selling and administrative $7 Fixed costs: Fixed manufacturing overhead $170,400 Fixed selling and administrative $7,000 What is the unit product cost for the month under variable costing? A) $118 B) $94 C) $111 D) $87

a.

Absorption costing is also known as A. Full costing B. Direct costing C. Variable costing D. Prime costing

d.

Assuming that direct labor is a variable cost, the primary difference between the absorption and variable costing is that: A) variable costing treats only direct materials and direct labor as product cost while absorption costing treats direct materials, direct labor, and the variable portion of manufacturing overhead as product costs. B) variable costing treats direct materials, direct labor, the variable portion of manufacturing overhead, and an allocated portion of fixed manufacturing overhead as product costs while absorption costing treats only direct materials, direct labor, and the variable portion of manufacturing overhead as product costs. C) variable costing treats only direct materials, direct labor, the variable portion of manufacturing overhead, and the variable portion of selling and administrative expenses as product cost while absorption costing treats direct materials, direct labor, the variable portion of manufacturing overhead, and an allocated portion of fixed manufacturing overhead as product costs. D) variable costing treats only direct materials, direct labor, and the variable portion of manufacturing overhead as product costs while absorption costing treats direct materials, direct labor, the variable portion of manufacturing overhead, and an allocated portion of fixed manufacturing overhead as product costs.

c.

Beamish Inc., which produces a single product, has provided the following data for its most recent month of operations: Number of units produced 8,000 Variable costs per unit: Direct materials $37 Direct labor $56 Variable manufacturing overhead $4 Variable selling and administrative expense $2 Fixed costs: Fixed manufacturing overhead $312,000 Fixed selling and administrative expense $448,000 There were no beginning or ending inventories. The unit product cost under absorption costing was: A) $93 B) $97 C) $136 D) $194

b.

Blake Company produces a single product. Last year, Blake's net operating income under absorption costing was $3,600 lower than under variable costing. The company sold 10,000 units during the year, and its variable costs were $9 per unit, of which $1 was variable selling expense. If production cost was $11 per unit under absorption costing, then how many units did the company produce during the year? A) 8,200 units B) 8,800 units C) 11,200 units D) 11,800 units

c.

Contribution margin in variable costing is A. Net sales - variable manufacturing costs B. Net sales - total manufacturing costs C. Net sales - total variable costs D. Net sales - total costs

d.

Determine the following statements as true or false. Statement 1. Direct costing and variable costing are different terms that mean the same thing. Statement 2. In a variable costing income statement, sales revenue is typically lower than in absorption costing income statement. Statement 1 Statement 2 A. False True B. False False C. True True D. True False

c.

Identify the following statements as true or false. Statement 1. In direct costing, fixed factory overhead forms part of the inventory value. Statement 2. The difference in net income between variable costing and absorption costing is due entirely to the treatment of fixed manufacturing overhead. A. Statement 1 is true, Statement 2 is true. B. Statement 1 is true, Statement 2 is false. C. Statement 1 is false, Statement 2 is true. D. Statement 1 is false, Statement 2 is false.

a.

If production is greater than sales (units), then absorption costing net income will generally be A. Greater than direct costing net income. B. Less than direct costing net income. C. Equal to direct costing net income. D. Additional data is needed to be able to answer.

a.

If sales equal production, one would expect net income under the variable costing method to be A. The same as net income under the absorption costing method. B. Greater than net income under the absorption costing method. C. Differing in as much as the difference between sales and production. D. Less than net income under the absorption costing method

b.

If sales exceed production, one would expect net income under the variable costing method to be A. The same as net income under the absorption costing method. B. Greater than net income under the absorption costing method. C. Differing in as much as the difference between sales and production. D.Less than net income under the absorption costing method.

a.

In absorption costing, as contrasted with direct costing, the following are absorbed into inventory. A. All the elements of fixed and variable manufacturing overhead. B. Only the fixed manufacturing overhead. C. Only the variable manufacturing overhead. d. Neither fixed nor variable manufacturing overhead.

c.

In an income statement prepared as an internal report using the direct (variable) costing method, fixed selling and administrative expenses would A. Not be used. B. Be used in the computation of the contribution margin. C. Be used in the computation of operating income but not in the computation of the contribution margin. d. Be treated the same as variable selling and administrative expense

d.

In its first year of operations, Bronfren Corporation produced 800,000 sets and sold 780,000 sets of artificial tan lines. What would have happened to net operating income in this first year under the following costing methods if Bronfren had produced 20,000 fewer sets? (Assume that Bronfren has both variable and fixed production costs.) Variable costing Absorption costing A)Increase Increase B)Decrease Increase C)Decrease Decrease D)No effect Decrease

a.

In variable costing, fixed manufacturing costs are A. Period costs B. Product costs C. Both period costs and product costs D. Neither period costs nor product costs

a.

Kray Inc., which produces a single product, has provided the following data for its most recent month of operations: Number of units produced 3,000 Variable costs per unit: Direct materials $91 Direct labor $13 Variable manufacturing overhead $7 Variable selling and administrative expense $6 Fixed costs: Fixed manufacturing overhead $237,000 Fixed selling and administrative expense $165,000 There were no beginning or ending inventories. The unit product cost under variable costing was: A) $111 B) $190 C) $117 D) $110

a.

Manufacturing contribution margin in variable costing is A. Net sales - variable manufacturing costs B. Net sales - total manufacturing costs C. Net sales - total variable costs D. Net sales - total costs

d.

Mullee Corporation produces a single product and has the following cost structure: Number of units produced each year 7,000 Variable costs per unit: Direct materials $51 Direct labor $12 Variable manufacturing overhead $2 Variable selling and administrative expense $5 Fixed costs per year: Fixed manufacturing overhead $441,000 Fixed selling and administrative expense $112,000 The unit product cost under absorption costing is: A) $149 B) $65 C) $63 D) $128

c.

Operating income using direct costing as compared to absorption costing would be higher A. When the quantity of beginning inventory equals the quantity of ending inventory. B. When the quantity of beginning inventory is more than the quantity of ending inventory. C. When the quantity of beginning inventory is less than the quantity of ending inventory. D. Under no circumstances.

b.

Other things being equal, income computed by the direct costing method will exceed that computed by an absorption costing method if A. Fixed manufacturing cost increases. B. Units sold exceed units produced. C. Variable manufacturing costs increase. Units produced exceed units sold.

a.

Period costs, as distinguished from product costs A. Not allocated to sold and unsold units B. Allocated to sold and unsold units C. Not reflected in the entity's profit or loss D. Reflected in the entity's financial position

a.

President X of WXY Corporation requested you to explain the different in net income between the variable costing income statement presentation and the absorption method. You would say that the difference: A. Is none if there is no change in the fixed costs in the beginning and ending inventories. B. Is equal to the fixed cost per unit times the number of units sold. C. Is attributable to the variable costs in the inventory. D. Is attributable to the fixed cost in ending inventory.

c.

Shun Corporation manufactures and sells a hand held calculator. The following information relates to Shun's operations for last year: Unit product cost under variable costing $5.20 per unit Fixed manufacturing overhead cost for the year $260,000 Fixed selling and administrative cost for the year $180,000 Units (calculators) produced and sold 400,000 What is Shun's unit product cost under absorption costing for last year? A) $4.10 B) $4.55 C) $5.85 D) $6.30

a.

Stoneberger Corporation produces a single product and has the following cost structure: Number of units produced each year 4,000 Variable costs per unit: Direct materials $50 Direct labor $72 Variable manufacturing overhead $6 Variable selling and administrative expense $3 Fixed costs per year: Fixed manufacturing overhead $296,000 Fixed selling and administrative expense $76,000 The unit product cost under variable costing is: A) $128 B) $125 C) $202 D) $131

d.

Swifton Company produces a single product. Last year, the company had net operating income of $40,000 using variable costing. Beginning and ending inventories were 22,000 and 27,000 units, respectively. If the fixed manufacturing overhead cost was $3.00 per unit, what was the income using absorption costing? A) $15,000 B) $25,000 C) $40,000 D) $55,000

a.

The difference in income between variable and absorption costing may be computed as A. Change in inventory units x fixed overhead rate per unit B. Change in inventory units x total fixed cost rate per unit C. Change in inventory units x total overhead rate per unit D. Change in inventory units x variable overhead rate per unit

b.

The following data pertain to last year's operations at Clarkson, Incorporated, a company that produces a single product: Units in beginning inventory 0 Units produced 100,000 Units sold 98,000 Selling price per unit $10.00 Variable costs per unit: Direct materials $1.50 Direct labor $2.50 Variable manufacturing overhead $1.00 Variable selling and administrative $2.00 Fixed costs per year: Fixed manufacturing overhead $200,000 Fixed selling and administrative $50,000 What was the absorption costing net operating income last year? A) $44,000 B) $48,000 C) $50,000

b.

The principal difference between variable costing and absorption costing centers on: A) whether variable manufacturing costs should be included as product costs. B) whether fixed manufacturing costs should be included as product costs. C) whether fixed manufacturing costs and fixed selling and administrative costs should be included as product costs. D) none of these.

a.

Under the direct costing, which is classified as product costs? A. Only variable production costs. C. All variable costs. B. Only direct costs. D. All variable and fixed production costs

d.

Under the variable costing method, which of the following is always expensed in its entirety in the period in which it is incurred? A) fixed manufacturing overhead cost B) fixed selling and administrative expense C) variable selling and administrative expense D) all of the above

a.

Variable costing is also called as A. Direct costing B. Full costing C. Indirect costing Absorption costing

b.

When all manufacturing costs used in production are attached to the products, whether direct, or indirect, variable of fixed, this is called: A. Process costing C. Variable costing b. Absorption costing D. Job Order costing

a.

When there is significant change in inventory, this costing method presents a clear picture of performance of the entity. A. Direct costing B. Absorption costing C. Both direct costing and absorption costing D. Neither direct costing nor absorption costing

b.

When units sold for the year are higher than the units produced A. Income in variable costing is the same as income in absorption costing B. Income in variable costing is higher than income in absorption costing C. Income in variable costing is lower than income in absorption costing d. Income in variable costing cannot be computed

c.

When units sold for the year are lower than the as the units produced A. Income in variable costing is the same as income in absorption costing B. Income in variable costing is higher than income in absorption costing C. Income in variable costing is lower than income in absorption costing D. Income in variable costing cannot be computed

a.

When units sold for the year are the same as the units produced A. Income in variable costing is the same as income in absorption costing B. Income in variable costing is higher than income in absorption costing C. Income in variable costing is lower than income in absorption costing D. Income in variable costing cannot be computed

b.

Which costing method complies with PFRS? A. Direct costing B. Absorption costing C. Both direct costing and absorption costing D. Neither direct costing nor absorption costing

a.

Which of the following costs at a manufacturing company would be treated as a product cost under the variable costing method? A) direct material cost B) property taxes on the factory building C) sales manager's salary D) all of the above

b.

Which of the following statements is correct? A. When production is higher than sales, absorption costing net income is lower than variable costing net income. B. If all the products manufactured during the period are sold in that period, variable costing net income is equal to absorption costing net income. C. When production is lower than sales, variable costing net income is lower than absorption costing net income. D. When production and sales level are equal, variable costing net income is lower than absorption costing net income.

c.

Which of the following will usually be found on an income statement prepared using the absorption costing method? Contribution Margin Gross Margin A)Yes Yes B)Yes No C)No Yes D)No No


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